What's Behind Given Imaging's (GIVN) Surge?

NEW YORK (TheStreet) -- Given Imaging (GIVN) was one of the markets' biggest gainers on Monday morning, gaining 25.3% to $29.64 and seeing trading volume nearly 100 times its three-month daily average.

The Israeli-based company, which specializes in developing video-camera capsules to diagnose disorders of the gastrointestinal tract, is popping on acquisition news. Covidien (COV) agreed to purchase the company for $860 million, or $30 a share, a 27% premium on Friday closing price of $23.65.

"Acquiring Given will enable Covidien to significantly expand its presence in a $3 billion GI [gastrointestinal] market," said Covidien's Group President of Medical Devices & U.S. Bryan Hanson in a statement.

The transaction is expected to close March 31, 2014 and be accretive to earnings per share by early fiscal 2015 beginning October of next year. Management expects the acquisition to add $40 to $50 million per quarter in incremental revenue.

Covidien shares gained 0.82% to $68.58 by mid-morning. Year to date, the Dublin-based business is up 18.8%.

TheStreet Ratings team rates Covidien PLC as a Buy with a ratings score of A-. The team has this to say about their recommendation:

"We rate Covidien PLC (COV) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, notable return on equity, reasonable valuation levels, increase in stock price during the past year and expanding profit margins. We feel these strengths outweigh the fact that the company has had subpar growth in net income."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • COV's revenue growth has slightly outpaced the industry average of 3.5%. Since the same quarter one year prior, revenues slightly increased by 2.4%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Health Care Equipment & Supplies industry and the overall market, Covidien PLC's return on equity exceeds that of both the industry average and the S&P 500.
  • Covidien PLC's earnings per share from the most recent quarter came in slightly below the year earlier quarter. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, Covidien PLC increased its bottom line by earning $3.40 a share vs. $3.37 a share in the prior year. This year, the market expects an improvement in earnings ($3.99 vs. $3.40).
  • Compared to where it was 12 months ago, the stock is up, but it has so far lagged the appreciation in the S&P 500. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
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